We’ve all heard the stats, 70 percent to 90 percent of all Mergers and Acquisitions fail to realize the expected synergies.  Not only do they ultimately fail, they typically destroy up to 60% of existing value. Then you have to ask the question, why do we keep trying to grow via M&A?  Who in their right mind would ever take these odds?  You might as well take your cash to Vegas, your odds are better. Why are the odds so low even after mounds of due diligence is done before the transaction?  What do so many companies miss that they keep failing…

What Is Mergers and Acquisitions Fit?

Mergers and Acquisitions Fit starts with addressing both cultural and strategic issues.  When I was doing mergers and acquisitions in my firm we rarely address both cultural and strategic issues.  Our main focus was strategic and thought we could overcome any cultural issues. M&A is just like dating and the initial love you feel for the other person.  It can be euphoric to think you’ve found a business that will add profit to your bottom line at a good price and fulfill a strategic need.  However, what once looked like a match made in heaven quickly fades when dirty socks keep showing up on the kitchen floor. You can cover over cultural issues as long as there are profits and hopes of future synergies and more profit.  Once profit isn’t what you expected we completely forget the promise of synergy and strategic benefits.  If your M&A strategy is going to be successful you have to weight culture and strategic issues equally. I can tell you from experience, the second profit dries up the cultural issues become front and center. When looking for strategic fit you should look at the following aspect before you ink the deal:

  • Accountability Chart – who’s doing what
  • Vision/Traction Organizer (10, 3, and 1-Year plans) – shared vision
  • Core Focus – shared purpose/cause/passion and niche
  • Balance of Talent – increased access to talent and teams
  • Reduced Expenses – reduction of resources
  • Increased Bottom Line – incremental profits
  • Synergies – markets and products/services
  • Efficiencies – technology, process, people

Culture Eats Strategy For Lunch

How true is “culture eats strategy for lunch“?  I’ve experienced first hand that when profits dry up with a merger and conflict arises, your degree of culture fit comes to light.  Cash covers up all sins and culture mismatch is no exception.  If you didn’t do your work in M&A pre-marital counseling and ensure there is a culture fit, when the leadership comes under pressure you will experience your level of fit.  I don’t wish this experience on anyone. Really smart people have failed in successfully completing M&A transactions.  I’m a firm believer that the reason they fail is not being able to overcome the initial love that occurs during the initial courtship.  Here are some aspects of culture to fully explore before tying the knot:

  • Core Values – they must be a total match
  • People – do you have the right people in the right seats, open and honest discovery of where the issues are
  • Management system – do you have one?
  • Personality/Ego – if there is a single dominant ego without the votes to back it up disaster is on the horizon
  • Can you work together? – do you get along and can you work on building trust one drop at a time?
  • Follow the rules of the game – can you not create an “us” and “them” mentality that damages the ability to work together.

If you have a growth strategy that includes mergers and acquisitions, I strongly recommend pre-marital counseling that includes an open and honest evaluation of both strategy and culture. If you are interested in a Mergers and Acquisitions Fit session by an EOS® Implementer schedule a 25-Minute coach call today.